InFocus Corporation (NASDAQ:INFS) has released its results for the fourth quarter and full year ended December 31 and they are, frankly, nothing short of horrific. As always, Greenbackd’s concern is primarily for the state of the balance sheet and the liquidation value of the company. Here, the news is bad:

Balance Sheet

Total cash and restricted cash as of December 31, 2008 were $33.4 million, a decrease of $36.9 million from the end of the third quarter. The reduction in cash was primarily driven by changes in working capital, the cash loss from operations and settlement on foreign exchange hedges. Inventories at the end of the fourth quarter were $38.5 million, an increase of $8.1 million compared to the third quarter of 2008.

We generally don’t pay too much mind to earnings. We welcome it when earnings fall off a cliff and drag stock along for the ride because it creates opportunities for investors like us who are focused on the balance sheet. We do, however, take issue with a management burning through more thanhalf of a company’s cash in quarter, especially when that cash is set alight in the “settlement on foreign exchange hedges.” An investor cannot have any confidence in a management that, confronted with cash losses from operations, not only neglects to fix operating cash flow but finds a new way to lose money. Remember INFS’s adoption of a poison pill “to help ensure … our Board of Directors is able to conduct its review of strategic alternatives without the threat of coercive takeover or control tactics that do not offer shareholders a fair premium”? Surely that argument is at an end now. Management has failed. It’s time for Nery Capital Partners to bayonet the wounded and put INFS’s stockholders out of their misery.

When we started coverage in December last year, INFS had a market capitalization of $25.6M. We estimated its liquidating value to be more than 80% higher at $46.7M or $1.15 per share. With Nery Capital Partners and Miller pushing the company to enhance its stock price, we believed INFS to be an attractive opportunity. That seems to have been a mistake. We don’t have a full 10Q / 10K to review, so we’ve adjusted our earlier model based on the information in the press release attached to the 8K (described above). Based on that incomplete information, we estimate that INFS’s liquidation value could now be as low as $8M or $0.20 per share. Given that INFS closed yesterday at $0.37, our reason for holding the stock is gone. Accordingly, we have to close out the position. We opened it at $0.63, so our INFS position is down 41.3% on an absolute basis. The S&P 500 Index closed at 873.59 on December 12, 2008 and closed yesterday at 833.74. That’s a return of -4.6% for the index and means we’re off 36.7% on a relative basis. In all, a bitterly disappointing outcome.

If you have the stomach for it, you can read a summary of the whole sorry tale below. Looking back, it seems that there were a number of portentous steps taken by management that should have tipped us off:

After we opened our position on December 12 last year, INFS announced that it would “restructure.” We wrote that management “believes it will achieve profitable operations with an 18% gross margin target and operating expenses in the range of $10-11 million per quarter.” We noted that projections about future profitability often don’t turn out as projected, saying:

They are made by managements deaf to what the market is telling them about the company. As a result, we are much more interested in the company’s plans to unlock the value in the assets. On that front, the news is mixed.

INFS has previously announced that it had retained an investment banking firm to provide “advisory services.” The new announcement says that these advisory services include “advice concerning unsolicited offers from outside sources expressing interest in purchasing the Company.” This is a positive development. The bad news is that the company has suspended the stock repurchase plan, which is slightly disappointing. We say “slightly disappointing” because a buy back of 4 million shares over a three year period does not have a meaningful effect on the per share value, so cutting it makes almost no difference. It does show, however, that management is ignoring obvious value-enhancing opportunities for stockholders.

There was a brief glimpse of light when we read a report that a group of “high-powered executives,” including INFS’s co-founder Steve Hix, wanted to buy the company if they could get financing. The executives planned to save INFS from the “New York sharks” who wanted to liquidate the company for a quick profit. Said one of the group:

We’ve got some whispers that there’s a guy in New York looking at buying 50 percent of this company, and he’ll liquidate it. We are scared. We don’t want that to happen to this company. We’ve been working for nine months on a way to save it.

Nery Capital, presumably one of the “New York Sharks,” then upped its stake to 12.2% of INFS’s outstanding stock. It seemed we might be in a competitive bid situation, which would have been very good news for stockholders as it often presages a fully valued offer for the company.

Unfortunately, the news then took a decided turn for the worse when INFS’s management adopted a poison pill, which it euphemistically described as a “Shareholder Rights Plan.” We wrote that calling such an abomination a “Shareholder Rights Plan” was pretty galling when its effect was to take rights away from shareholders and deliver them to management. We were also unhappy with the suggestion that the board were the ones to determine what was “in the best interest of [INFS] and its shareholders” and how much of a premium was “fair” given the level at which the stock languished (when we wrote that, the stock “languished” at $0.78, more than 100% higher than the level at which it languishes today).

Tuesday’s results announcement is just the final nail in the coffin. We care little for the tumble in earnings. We do care that the company has burnt through more than half its cash in a single quarter in pursuit of “foreign exchange hedges.” We’ve lost what little confidence we had in management’s ability to put shareholders first. That wouldn’t ordinarily cause us to exit a position. The accelerating destruction of value is, however, too much, and we’ve closed out the position.

[Full Disclosure: We have a holding in INFS. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. Do your own research before investing in any security.]

Effective today, if any person or group acquires 15 percent or more of the voting power of the Company’s outstanding common stock without the approval of the Board of Directors, there would be a triggering event causing significant dilution in the voting power of such person or group. The Plan may be terminated by the Board at any time.

The amendment to our Bylaws and the adoption of a Shareholder Rights Plan will help ensure that the previously appointed independent committee of our Board of Directors is able to conduct its review of strategic alternatives without the threat of coercive takeover or control tactics that do not offer shareholders a fair premium. Neither the Plan, nor the amendment to our Bylaws is intended to prevent an offer that the Board concludes is in the best interest of [INFS] and its shareholders.

INFS’s adoption of the poison pill is a disappointing step for management to take. Calling this thing a “Shareholder Rights Plan” is pretty galling when its effect is to take rights away from shareholders and deliver them to management. The suggestion that the board are the ones to determine what is “in the best interest of [INFS] and its shareholders” and how much of a premium is “fair” is just a joke given the level at which INFS’s stock languishes. We also have a problem with the use in the press release of such emotive language (“the threat of coercive takeover or control tactics”).

We’ve been following INFS because it is a deeply undervalued asset situation with two activist investors, Nery Capital and Lloyd I. Miller, III, pushing the company to “improve [INFS]’s financial condition and increase shareholder value” (see our first post here). The company’s adoption of a poison pill is a negative development for stockholders. Hopefully it is not a precursor to management handing the company to the second potential bidding group, which includes INFS’s founder Steve Hix, because they don’t want to see it fall to the “New York sharks.” INFS management has now set itself a high bar for the “review of strategic alternatives.”

We’ve been following INFS because it is a deeply undervalued asset situation with two activist investors, Nery Capital and Lloyd I. Miller, III, pushing the company to “improve [INFS]’s financial condition and increase shareholder value” (see our first post here). A second potential bidding group, including INFS’s founder Steve Hix, emerged last year to fend off the “New York sharks,” and we think that is a positive development for stockholders (see our last post here).

INFS is up 28.6% to $0.81 since we started following it, but we see the liquidating value 42% higher at $1.15 per share, so we will continue to hold it.

According to the Portland Business Journal, a group of “high-powered executives” plan to save InFocus Corporation (NASDAQ:INFS) from “New York sharks” who want to liquidate the company for a quick profit. The group, which includes Steve Hix, INFS’s co-founder, wants to buy the company if they can get financing. The group says its strategy, which entails expanding beyond projectors, could save the company. Said one of the group:

We’ve got some whispers that there’s a guy in New York looking at buying 50 percent of this company, and he’ll liquidate it. We are scared. We don’t want that to happen to this company. We’ve been working for nine months on a way to save it.

We’ve been following INFS recently (see earlier posts here, here, here and here) writing that it is a deeply undervalued asset situation with two activist investors, Nery Capital Partners and Lloyd I. Miller, III, pushing the company to “consider the views expressed by its shareholders and pursue new alternatives to increase shareholder value.” We see a second bidding group as a positive catalyst.

InFocus Corporation (NASDAQ:INFS) held a conference call yesterday to discuss the progress of its auction. We’ve previously posted about INFS here, here and here, writing that it is a deeply undervalued asset situation with two activist investors, Nery Capital Partners and Lloyd I. Miller, III, pushing the company to “consider the views expressed by its shareholders and pursue new alternatives to increase shareholder value.”

The call is pretty tightly scripted and doesn’t shed much additional light on the auction progress (the archive of the earnings webcast is available here) (registration required). CEO Bob O’Malley, the speaker, says that INFS has retained Thomas Weisel Partners, an investment bank, to provide advisory services including advice concerning unsolicited offers from outside sources. O’Malley attributes the interest in purchasing the company to INFS’s “good brands, good projectors, market share, channels, strong and dedicated team etc.” He continued that the special committee will work with the investment bank to review the offers “so management can continue running the company.” The “structure and nature of the offers vary” so the review will take an “undeterminate” (sic) amount of time. INFS will provide updates when they reach “definitative offer” and “completed agreement” stages or “the board has terminated the process.” O’Malley reitereated that INFS has “put on hold” the buy back. Other than that, there was little else to report. O’Malley refused to take questions, so no commentary from Nery Capital Partners or Lloyd I. Miller, III, which was a little disappointing.